Leaders call for free trade for Africa

The signature, by over 40 leaders of African nations, of a free trade agreement, shows the political will to move beyond Africa’s regional trade blocs is alive. Can a pan-African trade area become a reality?

By their acronyms, you shall know them. SADC, EAC, COMESA – each of them standing for a different regional association of African countries. North, South, East, West. Anglophone and Francophone jurisdictions are represented alike.

The genesis of an African free trade zone was originally announced at the EAC-SADC-COMESA Summit in October 2008 by the heads of the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC).

The groundwork for such a zone was cited in 2015 as “possibly the most significant event in Africa since the formation of the Organization of African Unity in 1963”, by the Harvard Kennedy School of Government’s Belfer Centre, with the international affairs think-tank adding it was “a key landmark in Africa's economic history”.

HISTORIC AFRICAN LANDMARK

March 2018, and nearly a decade on, another African landmark may be released, with the signature, by over 40 African governments, of a continental free trade agreement, which committed the signatory nations to cut tariffs on 90% of goods, as well as reforms encouraging intra-African trade in services, the prospect has emerged of the creation of the largest free trade area since the formation of the World Trade Organization – the African Continental Free Trade Area (AfCFTA), which will boost intra-African trade and help encourage growth.

The Financial Times reported that Paul Kagame, the Rwandan president, who is chair of the African Union, described AfCFTA as a “new chapter in African unity”, at a ceremony to mark the signing of the agreement in Kigali.

Witney Schneidman, a senior international adviser and chair of Covington & Burling’s Africa practice group, agrees, telling ALB: “The signing of the AfCFTA is a significant development and should be supported by all of the region's partners.”

While by no means a done deal, as the AfCFTA requires ratification by individual governments and will only come into force when ratified by at least 22 countries, it remains a tantalising prospect – notwithstanding that 11 countries, including South Africa and Nigeria, Africa’s strongest economies, were unwilling to take part.

As Schneidman notes, “AfCFTA culminates years of work by several regional economic organisations and the African Union, and indicates that regional economic integration is a top priority for most African governments.”

Yet the benefits for so doing could be considerable. According to statistics collated by the African Union, intra-African trade stands at about 16% of the continent’s total, compared with 19% in Latin America and 51% in Asia. The conclusion of an agreement could increase this by half for Africa, the United Nations Economic Commission for Africa estimates; and the rewards for so make financial sense.

Growth in Africa has ranged from between 7% in 2012 to 3.5% in 2017, according to the International Monetary Fund. Doubling intra-African trade, worth about USD 170 billion in 2017, according to the African Export-Import Bank, would boost the coffers of nation states, businesses and citizens alike.

PAN-AFRICAN BOOST IN TRADE

Kagame told the media in March: “As we trade more among ourselves, African firms will become bigger, more specialised, and more competitive internationally.” Hence why Andrew Jones, head of Africa at Linklaters, notes such an agreement could help boost trade between African countries.

Jones said that such a move could diversify Africa’s trade beyond its traditional exports and trading partners, helping to create jobs within a liberalised market. It’s a view shared by Johannesburg Hogan Lovells partner Laurie Hammond, who tells ALB that, if ratified, AfCFTA “has the potential to be the largest free trade area in the world”.

She agrees with Jones and Kagame: “Creating a single continental market would boost intra-Africa trade, which has lagged trade flows between African countries and the rest of world, and promote beneficiation.”

HARD WORK AHEAD ON RATIFICATION

However, says Jones: “Making that a reality will not be an easy task – it is a visionary project with several hurdles to overcome.”

Schneidman points out: “For one, 22 countries have until September to ratify the agreement for it to come into force,” while Jones points to “scepticism about whether some countries are ready for this and whether the expected economic benefits will be enough to offset traditionally strong protectionist tendencies on the continent”.

Adding that while AfCFTA “could be a turning point for the continent, much work remains to achieve the agreement's goal of boosting intra-African trade by 52% by 2022”.

Moreover, he says, AfCFTA will not be truly successful until the region's two largest economies, South Africa and Nigeria, are party to the accord, adding: “The African Union has its work cut out to fully implement the trade agreement.”

It is a view shared by Nankunda Katangaza, a consultant with Hook Tangaza, who tells ALB: “The absence of Africa’s largest economies, Nigeria and South Africa, however, is problematic.”

She points out: “Nigeria’s protectionist explanations suggest ratification and subsequent implementation – even by the current signatories – will be slow.” As Kagame himself said, as reported by the FT, “the creation of one African market necessarily entails a metamorphosis in how we think and act”.

Hence why Jones says that, even if areas of dispute are sufficiently dealt with, “it’s anyone’s guess as to how long it will take actually to establish the African free trade area”.

Katangaza suggests that large gestures at international summits are often easier to make, rather than incremental and more impactful ones, such as strengthening existing regional integration agreements already in force on the continent.

Less feted, but no less important, therefore, she notes, is the tripartite agreement between the EAC COMESA and SADC that will create a common market of 26 countries from Cairo to Cape Town. That, she feels, “will be a more stable building block towards a continental trade area than new negotiations under the African Union”.

Others, however, are more prepared to give credit to the new venture, with Schneidman saying the African Union “should also be congratulated for achieving this important outcome”, for as Hammond says, the fact that over 40 countries have agreed what they have, “is widely considered as a positive and exciting development for the continent”.

The onus is on Africa to capitalise on that development, in the months to come.

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